If you are concerned about a second stock market crash, you may well want to consider investing in different asset classes that are less correlated to the stock market.
Anyone who has seen the film About a boy will have wondered what it would be like to earn royalties from a song. Well now there is an asset class that allows you to do exactly that across an entire portfolio of music.
Protection from a stock market crash?
Hipgnosis Songs Fund (LSE: SONG) owns a portfolio of song royalties. Merck Mercuriadis, who set up the fund, is no stranger to the music business. He has managed artists including Beyoncé, Elton John, Iron Maiden, and Guns N’ Roses.
The royalties provide a regular, reliable income stream. There appears to be no correlation between the fund and the state of the economy or the stock market. In my opinion, this makes it a great hedge against a second stock market crash.
The fund currently pays quarterly dividends of 1.25p and had earnings per share last year of 10.7p. This stable dividend of just over 4% therefore looks very appealing in the current market climate.
Hipgnosis only listed on the market in July 2018, but its portfolio has already swelled to over 13,000 songs. The company market cap recently broke through £1bn and was propelled into the FTSE 250 in March this year.
The fund owns a stake in four out of the top five Billboard songs of the decade. It also owns a stake in eight of Spotify’s top 25 most played songs of all time.
Artists and songs are too numerous to mention but include Uptown Funk and Shape of You. This month it bought the future royalties to all 197 Blondie songs.
Hipgnosis believe it can manage the songs better to maximise their income potential through video games, TV commercials, or cover versions.
Going for a song?
In my opinion, the price looks fair, but not a bargain. July financials reported an operative net asset value of 116.7p and the fund has since added to its catalogue. The portfolio has been acquired on an average multiple of 13.9 times historic annual income.
It has returned 22.7% including dividends since IPO two years ago. I think this shows the protection the fund provides from a stock market crash.
In terms of risks, I would point out that song royalties are probably not the most liquid of assets. There is also an element of being subject to popular opinion or trends. However, management insist it only invests in songs with a proven track record and reliable income stream.
I think this fund provides a great way to diversify your portfolio in an asset class that protects you from a stock market crash. If I were a retiree looking for a reliable income stream through dividends, I would give Hipgnosis some serious consideration.